12 Organizational Health Metrics HR Should Know

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12 Organizational Health Metrics HR Should Know

Healthy organizations provide their employees with an environment where they can thrive. That translates into the company’s ability to achieve its goals and, ultimately, positive business results.

What are some organizational health metrics HR should know and keep track of?

Contents
What is organizational health?
12 organizational health metrics to measure

What is organizational health?

Organizational health is a broad umbrella term that means different things to businesses depending on their business model (e.g., profit vs. non-profit) and industry. It can refer to culture, employee happiness, functionality, effectiveness, operations, and more. A company could be very profitable but still, have a toxic culture and high turnover rate. Conversely, a company could report low profits and have an incredible culture and extremely low turnover rates. 

Given the gray area around organizational health and the need for more consensus about what it means within an organization, business leaders often fail to set targets and track metrics to measure and improve it. But this is a mistake. Research has shown that when companies pay equal attention to organizational performance and health, they double the probability of outperforming their competitors. In addition, Mckinsey found that between 2003 and 2011, healthy companies generated returns to shareholders that were three times higher than unhealthy companies. 

Gone are the days when the predominant challenges businesses face are internal (e.g., lack of technology, supply chain issues, etc.). Research from Bain and Company found that 94% of the development challenges businesses face today are internal, which means that organizational health should be a top priority for business leaders and HR teams. 

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12 organizational health metrics to measure

Back in the day, organizations would have to rely on intuition to determine how healthy they were. Typically, if operations were running smoothly, they were said to be healthy. But today, we are fortunate to have data and metrics to find patterns and trends and make evidence-based judgments and decisions. 

In the list below, you’ll find a range of HR metrics to gauge organizational health with an explanation of what they are, why they’re important, and how to measure them. 

12 organizational health metrics to measure

1. Employee engagement

Employee engagement is a metric that measures how much employees enjoy and care about their work, how strong their relationships are with leadership, and how interested they are in growing and progressing professionally. When an employee is engaged, they will be more effective and productive and will likely stay longer in the company. 

There are many ways to measure employee engagement. The most common method is to send employees an engagement survey (at least annually), encourage them to give honest feedback, and allow them to submit it anonymously. 

2. Employee well-being

Employee well-being differs from employee engagement as it’s more focused on your employees’ physical and mental health, but it’s another key metric to measure organizational health. 

An organization with a workplace and culture that contributes to high well-being usually correlates with happy, healthy, engaged, and productive employees and strong team morale. On the other hand, low well-being can lead to a reduction in all of these things. Plus, it affects your employee’s ability to make rational decisions and can result in low energy levels, empathy, and compassion. 

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Measure the well-being of your employees every quarter by giving them a series of statements and asking them to state how strongly they agree or disagree with the statements. For example, “I feel calm and relaxed at work” and “I wake up in the morning feeling rested and energized.”

3. eNPS

Your eNPS (Employee Net Promoter Score) refers to how likely your employees are to recommend their job or company to someone they know. The rating is usually done on a scale of 1-10, with one being the lowest and ten being the highest. You then calculate the average score and divide it by the total number of employees to get your eNPS. 

This is a great organizational health metric because it shows how satisfied your employees are at work. Your promoters (those who answer 9 or 10) play a key role in attracting talent to your organization. On the other hand, your detractors (those who answer 1 to 6) are a potential threat to your company’s engagement and productivity and your ability to retain and attract new talent. 

It’s a good idea to ask a follow-up question to those who answer with a score of six or less: “What is your number one reason for not recommending our company to someone you know?”

This can help you uncover a common problem in your organization and work to improve it. You may find that there isn’t a problem at work, but employees prefer to keep their work and personal lives separate. 

4. Employee turnover

Employee turnover rate helps you understand the rate at which employees leave your organization. Turnover can be voluntary (initiated by the employee) or involuntary (initiated by the company). Typically, new hires are not included within this group as the new hire turnover rate can be calculated for these employees. 

Your turnover rate can pinpoint potential issues in your organizational health and culture. If employees are happy at work, feel they are well compensated, and have opportunities to grow and progress within the company, why would they leave? 

To calculate your employee turnover rate, divide the number of employees who left during a specific period by the total number of employees you had at the start of that period. 

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There is no specific healthy turnover rate, as this depends largely on your industry and the type of jobs available. 

Regrettable turnover

Regrettable turnover measures the number of high-performers who leave an organization, either because they found a better opportunity or because they were unhappy at work. This can be another useful turnover metric to track because these are your top performers and are essential to your organization’s overall effectiveness and productivity. 

If you have a high number of high-performers leaving, it’s important to find out why they’re going (i.e., through an exit interview) and quickly work to resolve any issues you’re made aware of. 

5. Profitability

As we briefly discussed earlier, a profitable organization does not automatically equate to optimum organizational health. A company can grow to be extremely profitable yet still have a toxic culture. However, generally speaking, profitability is a key part of the overall success of any business that is for-profit. Survival rates for a company that continues to turn a loss will rapidly decrease over time because it will struggle to pay employees and suppliers, and there will generally be very low morale from leadership downwards. 

To know your profitability, you need to know your current profit and whether it’s increasing or decreasing on the previous year or quarter. You also need to know where you sit in your industry in relation to competitors. Benchmark data will help with this. 

6. Absenteeism rate

The absenteeism rate measures how often your employees are absent from work over a given period. It refers to unplanned absence due to sickness or something else (stress, taking care of someone who is sick, or a fake sick day). It does not include holidays or late days. 

This is a key measure of organizational health and employee well-being. A high absenteeism rate suggests that employees may be burnt out from too much responsibility or lack engagement at work. 

To calculate absenteeism for an individual employee, take the number of workdays missed and divide it by the workdays schedules. You can then find the average absenteeism rate for your entire organization. 

Generally, 1.5% is a healthy average absenteeism rate because sickness is inevitable. You want employees to feel able to call in sick rather than turn up unwell out of fear because this will result in a loss of productivity and poor health. Anything higher than this points to a potential problem: stress, exhaustion, lack of engagement or motivation, conflict with coworkers or managers, or something else. 

7. Job satisfaction

Job satisfaction measures how many employees are satisfied with their job over a set period. This is a useful metric because while many factors can influence engagement, satisfaction directly measures how content employees are with their work. 

Low job satisfaction could indicate a lack of structure, weak communication, too few team members, too much responsibility placed on one person, insufficient opportunity to progress, or a bad job fit. 

To measure this, divide the total number of employees who report being satisfied by the total number of employees. 

8. New hire fail rate

The new hire fail rate is another strong organizational health metric because it shows how many new hires successfully complete the first 90 days of their contract. A higher-than-average new hire fail rate indicates that an organization is investing significant resources (time and money) in recruiting new hires but not seeing a return. 

To measure this, take the total number of new hires who have failed over the past 90 days and divide it by the total of new hires in the same period. 

A good or bad new hire fail rate will depend on your industry and the job market, but anything over 30% suggests a cause for concern. 

9. Assessing organizational capabilities

Organizational capabilities are the assets an organization draws on to complete work, execute its business strategy and satisfy customers. This includes culture, leadership performance, strategic unity, innovation, agility, talent, and customer connectivity. 

The strength of these assets defines a company’s identity and helps to differentiate it from its competitors. For example, Apple could share its technology with another computer company, but it would not be able to compete with Apple’s brand and the emotional connection they have built with their customers. 

There is no set formula to assess organizational capabilities; rather, there are many actions you can take:

  1. Engage leadership
  2. Define and list your organizational capabilities
  3. Conduct an organizational capabilities assessment
  4. Understand the capability gap
  5. Prioritize and create an action plan
  6. Track progress and follow up.

10. Organizational culture

“Culture eats strategy for breakfast”—Peter Drucker.

A strong organizational culture is perhaps the most important factor in boosting your employee’s well-being, productivity, and effectiveness. But it’s not enough to define your core values and write a company mission statement. Leadership needs to ensure that employees understand how those values contribute to the success of the organization, can see managers and leaders demonstrating these values, and possess the skills to act in accordance with them. Anyone who does not align with or respect these values contributes to a toxic culture and should be eliminated. 

To measure the strength of your culture, give employees a series of statements about it and ask them to state how strongly they agree or disagree:

  • Company values help to guide my decisions and actions at work
  • Managers and leaders in our company uphold our core values
  • I possess the skills and knowledge to act according to our core values
  • I understand how our company culture affects and supports the long-term success of the company and all its employees and customers. 

11. Pay equity

Pay equity is a metric that helps measure whether an organization’s compensation strategy is fair and impartial. This is important because it helps you become aware of biases, whether conscious or not, which often happen when determining employee salaries. When an organization compensates its employees fairly based on job performance, they are in a stronger position to attract and retain top performers. 

This metric is hard to quantify, and there’s no exact formula. First, you must audit all salaries to ensure employees in similar roles are being compensated fairly, regardless of differences in race, gender, or age. 

12. Organizational Health Index

The Organizational Health Index (OHI) is a benchmark created by McKinsey that aims to help business leaders gain a detailed picture of their organizational health compared to competitors. It boasts more than 1 billion data points across industries around the world and is a global standard to measure the health of an organization. 

Your OHI score indicates your overall performance and organizational health compared to a global benchmark. From here, companies can align with one of the defined McKinsey “recipes for success” and then plan and execute their strategy to improve results.

To conclude

To track relevant organizational health metrics, you must first define what organizational health means for your business. That way, you can ensure that your company can achieve what it set out to accomplish while maintaining an engaged, productive workforce.

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